“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The investment philosophy practiced by Warren Buffett calls for investors to take a long-term horizon when making an investment, such as a five year holding period (or even longer), and reconsider making the investment in the first place if unable to envision holding the stock for at least five years. Today, we look at how such a long-term strategy would have done for investors in Paychex Inc (NASD: PAYX) back in 2016, holding through to today.
| Start date: | 11/14/2016 |
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| End date: | 11/11/2021 | ||||
| Start price/share: | $56.30 | ||||
| End price/share: | $123.40 | ||||
| Starting shares: | 177.62 | ||||
| Ending shares: | 206.93 | ||||
| Dividends reinvested/share: | $11.60 | ||||
| Total return: | 155.35% | ||||
| Average annual return: | 20.65% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $25,538.18 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 20.65%. This would have turned a $10K investment made 5 years ago into $25,538.18 today (as of 11/11/2021). On a total return basis, that’s a result of 155.35% (something to think about: how might PAYX shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Many investors out there refuse to own any stock that lacks a dividend; in the case of Paychex Inc, investors have received $11.60/share in dividends these past 5 years examined in the exercise above. This means total return was driven not just by share price, but also by the dividends received (and what the investor did with those dividends). For this exercise, what we’ve done with the dividends is to assume they are reinvestted — i.e. used to purchase additional shares (the calculations use closing price on ex-date).
Based upon the most recent annualized dividend rate of 2.64/share, we calculate that PAYX has a current yield of approximately 2.14%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.64 against the original $56.30/share purchase price. This works out to a yield on cost of 3.80%.
Here’s one more great investment quote before you go:
“The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently.” — Jack Bogle
